IRA with Family Trust as Beneficiary

An 84 year old woman passed away in February 2017 with an IRA at a large bank. Her beneficiary was the Smith Family Trust and her three children are equal beneficiaries of the Family Trust. The trustee of the trust, who happens to be one of the three children, would like to have the IRA separated into three Inherited IRA FBO each individual child beneficiary. The bank is not being cooperative, but they did indicate that if they sign a “Trust Bypass Indemnification Agreement” that they may be able to split the IRA into three Inherited IRAs. Any thoughts or suggestions on how to split the IRA without having to sign this form? Or any suggestions about the ramifications of this specific form? I would have thought the trustee should be able to just instruct the bank to split the IRA into three Inherited IRAs since they are the beneficiaries of the Family Trust anyway. Thank you!!!



If the trust provisions allow the trustee to terminate the trust anytime, there was probably no reason not to name the beneficiaries outright. However, if the trust permits the trustee to terminate it then the trustee can assign the IRA to the trust beneficiaries, who will then have their individual separate inherited IRA accounts. As for the form to be signed, the bank is just playing it safe so that any beneficiary that is not happy with the trust termination cannot sue the bank as well as the trustee of the trust. For the trust to be considered as qualified for look through treatment, the trust info must be submitted to the IRA custodian by the deadline of 10/31/2018 and if the trustee does not do this, the trust is not qualified and RMDs to the beneficiaries will be based on the remaining life expectancy of the decedent.  That would impair the ability to stretch the inherited IRA. If the trust is considered qualified, then the beneficiary RMDs will be based on the oldest trust beneficiary.  The life expectancy of each beneficiary cannot be used here since the separate account rules do not apply to trust beneficiaries.

Do you think it is better to just terminate the trust or sign the bypass indemnification agreement (assuming the trustee is permitted to terminate the trust)?

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